Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses(Questions 120-139)


MONDAY 20 MAY 2002

Mr Steinberg

  120. The last time we discussed this—and I cannot remember whether it was with you or with Rachel Lomax—
  (Sir Nicholas Montagu) I sincerely hope that if it was on tax credits it was with me. I should not like it if Rachel has been poaching off her territory.

  121. What appears in paragraph 3.11 seems to bear out what I was saying last time we discussed this. At the time I was very concerned that it appeared to be reasonably simple for somebody to tell a simple lie when filling in the application form, particularly regarding their marital status, to defraud the system. For example, husbands or partners leave the nest or say they have left the nest, the working families' tax credit being awarded then they miraculously make up and come back again. I have been given a number of tip-offs about this happening. Did you carry out any investigations?
  (Sir Nicholas Montagu) Yes, we carry out enormous numbers of investigations. Basically, we have a comprehensive strategy to address the risk of fraud or manipulation in both the tax credits. Bear with me for a slightly long answer. What we have is a basic, up-front clerical check of identity. We sift out potential cases for referral and then the dedicated compliance staff mentioned in Sir John's report select cases for inquiry. What we did was to build on the checks for benefits in payment used by the Department for Work and Pensions, which may be why Rachel came into your mind, but we added our own checks against our own data. The main difference is that we actually use risk assessment and post-payment checks, as we already do for tax and national insurance contributions. We will check income data against the system which supports pay-as-you-earn tax or self-assessment. We tackle misrepresentation of circumstances, like living together, through our data warehouse. Do we have the same address for someone else not mentioned? We do have a pretty comprehensive strategy. We check with employers to ensure that employees do not overstate their hours.

  122. How many cases of fraud did you find?
  (Sir Nicholas Montagu) Fraud is difficult to establish. What we are talking about is a spectrum which covers everything from innocent misrepresentation through to "Well, it's worth a try", through to the kind of hard determined fraud which we prosecute. Somewhere I have statistics for prosecutions. In 2000-01 we prosecuted only two cases, but bear in mind—

  123. I gave you information about 14 in one place doing it.
  (Sir Nicholas Montagu) I have two where there were criminal proceedings.

  124. Information was given to me that at least 14 people were doing it in the one establishment. You are telling me that you have prosecuted two people in the whole country.
  (Sir Nicholas Montagu) We obtained two convictions during that year. While we are talking we will fiddle around with our papers and at the end of your questioning I will come back with the figure on that for you.

  125. I find that quite staggering. After all the explanation you have given me on how deeply you go into it, you have found two people fiddling the working families' tax credit in the whole of the country.
  (Sir Nicholas Montagu) No. Dave has given me the figures. Sixteen individual prosecutions plus two of collusive employers.

  126. That is 18 cases out of 1.3 million people who are claiming it.
  (Sir Nicholas Montagu) Yes.<fu2>

<fo2> Note by witness: A total of 16 prosecution cases were instigated in 2000-01, of which only two were completed in Court. The two collusive employer prosecutions were included in, rather than in addition to, that figure.

  127. I was told of 14 in one place in my constituency.
  (Sir Nicholas Montagu) May I just say, as I have said in writing to you, that if your informant would like to get in touch with the area directors whose names I have given you, we always act on third party information.

  128. I was going to come to that. How seriously do you take tip-offs?
  (Sir Nicholas Montagu) Utterly.

  129. I gave you a tip-off and you do not seem to have taken it seriously.
  (Sir Nicholas Montagu) You gave me a tip-off and I wrote to you and said that if you could give our people more detail we would look into it. Whenever we get a tip-off we look into it. What we do not do and cannot do is tell the informant what happened, which some informants find frustrating, because we are bound by statutory rules of confidentiality.

  130. How many tip-offs did you get last year?
  (Sir Nicholas Montagu) I do not have a figure for that off hand.

  131. How much money did you recover because of tip-offs?
  (Sir Nicholas Montagu) I do not know whether we have information in that form. If we do I shall let you have it. Sixteen thousand tip-offs, but I do not know whether we have a figure for the amount of money recovered.<fu3>

<fo3> Note by witness: This figure relates specifically to allegations referred to the Inland Revenue via the Department for Work and Pensions' National Benefits Fraud Hotline. The precise figure is 16,676. The amount of money recovered as a result of reviewing those `tip-offs' was £743,140. These figures relate to the period 1 October 1999, when working families tax credit was introduced, to 31 December 2001, and are available only as a result of a specific one-off exercise carried out in January 2002 to answer a Parliamentary Question. We do receive other types of information that could be described as `tip-offs'. This information, however, is reviewed in the same way as other referrals to our Tax Credit Compliance Co-ordination Unit.

  132. This is interesting. Sixteen thousand tip-offs and two prosecutions.
  (Sir Nicholas Montagu) No; 16 prosecutions.

  133. Sixteen thousand tip-offs and 16 prosecutions.
  (Sir Nicholas Montagu) Yes, but they are not all as tax credit literate as you are.

  134. I do not claim it.
  (Sir Nicholas Montagu) The people tipping off. Quite a lot of tip-offs will be "Did you know he is working?". Of course we knew he was working. That is what working families' tax credits are for. Not all the tip-offs are well founded. Even where they are, there may not be enough to prosecute. Remember that an important part of our work is educating people. Remember also that by definition a lot of these people will be people we actually want to go on helping.

  135. Let us move on slightly. According to the report, 3,250 cases were investigated. Is that right?
  (Sir Nicholas Montagu) You are looking at paragraph 3.14. This is the representative sample.

  136. Yes, that is right. Out of 1.225 million claimants you looked at 3,250 cases. Is that right? That seems to me to be a very small sample.
  (Sir Nicholas Montagu) Yes.

  137. How can you derive any sort of information from that? Do you regard it as accurate?
  (Sir Nicholas Montagu) We regard it as statistically valid. Yes, of course you are right that it was a small sample. What we wanted was a structured study which would give us an indication of the likely levels and nature of fraud, or, let me say, non compliance because that covers everything from innocent error through to determined fraud. Our analysts advise that this was a statistically valid sample. Of course we could have done a bigger one, but it would have taken much longer to complete.

  138. Let us move on to paragraph 3.18. Looking at this paragraph, it tells us that there were 26,500 cases accepted for inquiry and 3,600 were dropped because they were regarded as low risk. What is the difference between high risk and low risk? I am asking that quite seriously.
  (Sir Nicholas Montagu) Basically you are talking about people who are compliance experts looking at cases referred to them and thinking actually this does not look that suspicious. What we had to do was make the case for following up simple aspect inquiries against the other imperative of making prompt and accurate payments to people who needed it. What we did was to end the inquiries into simple cases where the work done to date made it look as though they were unlikely to be non-compliant.

  139. Would it be fair to say that you dropped these cases because there was a lack of resources to do the lot and you went for what you thought were the higher risk ones? I am not quite sure what the higher risk ones are.
  (Sir Nicholas Montagu) It would not be wholly wrong, but it would be simplistic. If we had had a whole lot more people we could have followed these cases right through and at the same time concentrated on getting the right payments to the right people at the right time. Life being as it is, we have to make choices. We looked at the work done to date on these cases, picked out the ones which did not look as though they were compliant, looked at them again before we discontinued work and closed them down.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2002
Prepared 5 December 2002